Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing-IAM contract talks fail, no new negotiations scheduled, no end in sight October 9, 2024
- Boeing 3Q deliveries up despite strike October 8, 2024
- Strike slows Boeing’s march toward improving safety culture October 7, 2024
- Aerospace supply chain still ailing; Sustainable Aviation Fuel isn’t the answer to go green October 4, 2024
- Bjorn’s Corner: New engine development. Part 27. Long developments October 4, 2024
Is Boeing’s BAFO really it? IAM rejects it and says no vote (Update) (2)
Update 2: Here is the red-lined union contract proposal from Boeing: Redlined-CBA-IAM751W24-Sept-23-2024 (1)
By Scott Hamilton
Sept. 23, 2024, © Leeham News: Boeing’s Best and Final Offer (BAFO) today to its striking IAM 751 union membership for a new contract is a risky gamble.
The offer bypassed the local’s negotiating team and appealed directly to the membership. 751 leadership already filed a complaint with the National Labor Relations Board for alleged violations of collective bargaining laws for the same reason during the original contract negotiations.
Boeing risks a new complaint over its latest move, which almost certainly angered Jon Holden, president of 751, and the negotiating team. No comment has been forthcoming from Holden or 751, but the president of the “parent” IAM issued to following statement, ABC TV News reported yesterday:
“Employees knew Boeing executives could do better, and this shows the workers were right all along. The proposal will be analyzed to see if it’s up to the task of helping workers gain adequate ground on prior sacrifices,” said Bill Bryant, president of IAM International.
The absence of a comment from 751 doesn’t mean others aren’t. Two retired Boeing IAM members told LNA the BAFO is acceptable and said union members should approve it. However, social media commentary takes a decidedly different view.
Update: The IAM 751 just posted a response to its Twitter (X) account, here. It’s a scathing reply. In part, the union leadership said, “THIS IS A NON-NEGOTIATED OFFER from Boeing. Your Negotiating Committee did not have any discussion or input on this offer. We have said all along that the Union would be available for direct talks with Boeing or, at a minimum, expected to continue mediated discussions when the company was ready. These direct dealing tactics are a huge mistake, damage the negotiation process, and attempt to go around and bypass your Union negotiating committee.” (Emphasis is the union’s.)
There will be no vote Friday, the union says.
One post on Reddit mocks Boeing’s “Best and Final Bingo” offer. There are claims of “astroturfing,” ie posts that purport to be from IAM members but which are believed to be ghosts for Boeing. There’s no proof, but one former IAM member said that during the contentious 2013/2014 vote for concessions in exchange for the 777X assembly in Everett astroturfing was traced to Boeing.
Other posts make it clear that there is resentment over Boeing’s releasing the BAFO to the media before the members received it. And generally, there remains a belief that Boeing can do more.
Boeing makes “Best and Final Offer” to IAM; sets Sept. 27 midnight deadline
Sept. 23, 2024, (c) Leeham News: Boeing issued its Best and Final Offer (BAFO) to its largest union, the IAM 751 a short time ago. The company set midnight Friday as the deadline to accept it.
So far, there has been no comment from the union. The union went on strike at midnight Sept. 12 after rejecting a contract with a 95% vote and went on strike with a 96% vote.
Boeing’s website has additional information.
A retired union member told LNA the members should accept this one, with the restoration of the year-end bonus a key feature.
Boeing’s shareholders: which do you prefer? Dilution or bankruptcy?
By Scott Hamilton
Sept. 23, 2024, © Leeham News: A Wells Fargo analyst calculated The Boeing Co. might have to issue 190 million shares of stock to get itself out of the financial mess it’s in.
At the $155 range Boeing’s stock has been recently trading, which would be just shy of $30bn.
Last week, Barron’s (a financial publication) wrote that Boeing has too much debt and perhaps a $10bn equity offering would suffice.
The Wells Fargo analyst and Barron’s complained that issuing stock would hurt shareholders due to the dilution.
On Sept. 12, the day Boeing’s IAM 751 union rejected the Tentative Agreement for a new labor contract and voted to strike at midnight, LNA did a deep dive analysis of the Wells Fargo equity speculation and the increasing speculation that Boeing might be forced into bankruptcy if the strike lasts a long time.
Before that, LNA analyzed the net debt levels, how long it would take to pay it down, and the annual interest to be paid.
Boeing’s financial position is precarious. It needs $10bn in cash to run the company; on June 30, the end of the second quarter, it had $12bn in cash. It’s losing an estimated $100m a day during the strike.
Wall Street types wring their hands over the dilution of a possible stock offering. This begs the question: would they prefer dilution or bankruptcy, which typically wipes out shareholders?
Or would they prefer at least a decade of stagnation while Boeing tries to operationally repair its balance sheet?
LNA welcomes the idea of a $30bn equity offering.
Boeing won’t fully recover without drastic action. And a massive equity offering best fits this need.
Related Stories
- Boeing has too much debt. (Barron’s)
- IAM rejects contract, strikes at midnight
- Boeing’s liabilities problem: a decade to resolve
- Melius analyst report: The Strike is a Symptom of a Bigger Problem
Bjorn’s Corner: New engine development. Part 25. New versus old, CFM56 vs. LEAP
By Bjorn Fehrm
September 20, 2024, ©. Leeham News: We do an article series about engine development and why it has longer timelines than airframe development. It also carries larger risks of product maturity problems when it enters service than the airframe of an airliner.
In our look at examples of recent developments with problems and these put in a historical perspective, we compare the CFM56 to the LEAP, comparing their reliability and durability.
Figure 1. The CFM56 with its mid-span shrouded titanium fan. Source: CFM.
The A330neo for medium haul or twice the frequency with A321XLR? Part 3
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By Bjorn Fehrm
September 19, 2024, © Leeham News: We examine the high-volume short-to-medium-range market and check whether a route previously reserved for the Airbus A330 can be flown with a fleet of A321XLRs. At equal per-passenger operational costs, doubling the frequency is advantageous and can drive market growth, revenue, and margin.
After comparing passenger only operating costs, such as per seat mile Cash Operating Costs (COC), we add cargo to the mix. To compare efficiency, we then need to do a route margin comparison.
Summary:
- When we add cargo to the revenue mix, the A321XLR’s limited cargo capability makes it a less attractive alternative for routes with cargo traffic.
- The A321XLR is still an interesting alternative for routes with few cargo opportunities and where route frequency can motivate higher passenger yields.
Embraer versus Boeing JV arbitration decision results in $150m cash payment
By the Leeham News team
September 16, 2024, © Leeham News: Embraer issued a short investor release today stating that the arbitration was concluded regarding Boeing’s unilateral termination of the agreement of a Commercial Aircraft Joint Venture and a partnership regarding the C-390 aircraft. Boeing did the M&A termination in April 2020.
The resu
lt is that Embraer will receive a $150 m cash payment from Boeing. The payment is below the market expectations, which were around $300m to cover the Embraer carve out and carve in costs. The issue of the Boeing merger and its effects on Embraer is now history, which is positive even though Boeing’s damages payment was lower than expected.
Embraer will most likely use the cash injection to lower its net debt, which is already at a low $1.3bn and has a leverage to EBITDA of 2.0.
It was in July 2018 that Embraer announced it would sell 80% of its Commercial Aviation business, then valued at a 100% value of $5.25bn to Boeing. The Master Transaction Agreement was signed in January 2019. It included a joint venture for marketing the C-390 Millenium multi-mission military cargo jet.
Why the IAM 751 rejected the Boeing contract and what is needed for approval
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By the Leeham News Team
Analysis
Sept. 16, 2024, © Leeham News — The lopsided outcome of last week’s vote by the International Association of Machinists District 751 union members to resoundingly reject Boeing’s four-year contract offer caught a lot of observers by surprise, including us.
Not that we didn’t expect the offer would be rejected. That seemed a reasonable bet. But if anyone tells you their Magic 8 ball had predicted a 94.6% vote to reject the contract and a 96% vote to strike, they’re overstating.
Our industry sources tell us that Boeing management was utterly gobsmacked by the result. Even the union staffers and officers we talked to on the night of the vote were surprised.
The result is now that some 33,000 751 members spent the weekend on picket lines surrounding Boeing facilities in Washington state, Oregon, and Edwards Air Force Base in California.
And Boeing management, which had very little leverage going into these contract talks, has approximately zero leverage now.
The problem, for everyone in our industry hoping for a quick resolution of this strike, is that Boeing has been acting since intensive talks started in August like it doesn’t understand how little leverage it has over the union this year. Despite new CEO Kelly Ortberg’s factory floor visits and talk about a “reset” with the unions at Boeing, Boeing acted like it believes it’s still 2014 when it won a bitter fight for a contract amendment granting concessions in exchange for locating the 777X final assembly line in Everett (WA).
Maybe Thursday night’s results will be the moment Boeing’s labor relations strategy needs if it’s ever going to solve its interconnected safety, quality, reputational, and cash-flow problems.
Summary
- What’s the latest
- Why the offer failed
- At the table
- Where we are
- How does this end?
Boeing CFO: we want to negotiate; taking steps to preserve cash
By Scott Hamilton
Sept. 13, 2024, © Leeham News: Brian West, the CFO of The Boeing Co., said management wants to get back to the negotiating table with its largest union, the IAM 751, to reach a new contract agreement as quickly as possible.
He also said the company is taking steps to preserve cash following a strike that began at midnight yesterday after the union rejected a contract by an unprecedented 95% vote and authorized a strike with 96% of the vote.
The strike comes at a time when Boeing is losing billions of dollars in cash, remains in a loss-making position, and struggles to recover from five years of crises and self-inflicted turmoil.
West made his remarks this morning in a previously schedule appearance at the annual Morgan Stanley Laguna Beach investors conference.
An edited transcript of his appearance follows.
Bjorn’s Corner: New engine development. Part 24. New versus old, GTF versus V2500
By Bjorn Fehrm
September 13, 2024, ©. Leeham News: We do an article series about engine development and why it has longer timelines than airframe development. It also carries larger risks of product maturity problems when it enters service than the airframe of an airliner.
We have covered the engine’s different parts and their technology challenges. We now look at some examples of recent developments with problems and put them in a historical perspective.
IAM files Unfair Labor Practice against Boeing in thumping rejection of contract
By Scott Hamilton
Sept. 12, 2024, © Leeham News—Seattle: Members of Boeing’s largest union, the IAM 751, gave the company a thumping in rejecting a contract offer tonight. The contract was rejected by 94.6% of the vote and 96% of the members voted to go on strike at midnight. It was a thumping of unprecedented proportions, said a union member.
Jon Holden, the president of IAM 751. Photo Credit: Leeham News.
Union president Jon Holden said the 751 also filed an Unfair Labor Practices (ULP) complaint with the National Labor Relations Board. He claimed Boeing violated the law in several ways that prohibit company contact directly with members during negotiations.
Holden, who came under some withering criticism from some members for recommending the contract, previously said it was the best that could be achieved at the negotiating table. But in the end, the members had the final say, Holden said tonight.
“While there were many important things that were in this offer, it didn’t make up, it didn’t bridge the gap for 16 years from 2008 and going through two extensions and the threats of job loss, stagnated wages, cost shift on healthcare, and many other issues, especially relocation of thousands of jobs for other programs here in the state,” Holden said at a press conference after announcing the vote.
“Our members spoke loud and clear tonight. All day they were voting across Puget Sound, across Portland, Victorville, California, Edwards Air Force Base, and Moses Lake. I’m proud of our members. I’m proud of them for standing up and fighting for more for each other, for their families, for the community.”